Warren Buffett’s 9 Secrets – Episode 222

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[00:03] Welcome to the prosperity podcast fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street Here’s your hosts best-selling author Kim DH Butler and no BS money guy Todd Strobel Everybody welcome to the prosperity podcast. This is no BS money guy Todd Strobel Once again, we have best-selling financial author Kim Butler with us again today And we’re going to be taking a look at what may be one of the greatest investors in in in history Warren Buffett who is sharing nine of his secrets that he believes in and it’ll be interesting to kind of compare and Contrast those nine with Kim because I mean him has not been invested in as long as mr Buffett has but she certainly has been around for a big chunk of his time

[00:57] So it’s not you know, you have you guys have both been exposed to the same economy as I suppose is what I was a Yes, but I’m I’m grateful that you acknowledge that I haven’t been around quite as long as he has and the thing that I want I wonder though is I wonder if the advice that he’s given out is more heavily based upon a accumulation of what he’s learned or What he projects will be in the future I mean, I think it would be a natural tendency to automatically assume but you’re talking about one of the smartest human beings on earth Here, so I don’t think he’s going to be behind by any means But I just wonder how some of his will play out with you know quite frankly the clients that Kim is working with and

[01:46] Him herself have a different life Projectory then he does is that fair enough to say? Absolutely, what well said very smoothly said All right. Let’s see if we can get in here and find this here real quick It’s called a nine investing steps from Warren Buffett’s playbook And this was actually published in US News and World Report on May the 2nd 2017 was written by a guy by John John Devine if anybody needs to know I think Warren Buffett kind of He is considered the father of what’s called a value investing number one And I will I will go along with this 100% study the best Mm-hmm. That’s interesting study the best so I’ll Want to elaborate on that because I think you want to define for yourself

[02:44] First what the best is like are you looking for the best investment? That’s going to grow are you looking for the best investment that’s going to create cash flow Are you looking for the best investment short-term long-term and I believe that there are definitely differences among those various areas And I’m also not sure that it’s humans or human being Actions that are giving us quote the best I think sometimes the underlying asset is the best so we want to just be Thoughtful about what we’re studying that being said yeah, absolutely Why would you bother studying what doesn’t work and although just literally is that’s coming out of my mouth. I Think that is valuable. Sometimes we should be studying what doesn’t work

[03:32] So I’m gonna go with yes study the vet the best but maybe you study some other things as well One of the other things they point out in this article and I’m attracted to these naturally but I never thought of it is studying is to Read all of the shareholder letters you can get your hands on Interesting and see right there. That’s just indicative that he’s clearly as we knew he would be focused on the stock market as quote a definition of Investing and there’s just so many more other additional Investment environments that have no such thing as a shareholder letter, right? What’s cool about a shareholder letter though is that’s one of the things they have to do is they have to define the market

[04:18] in the future So it’s you know, you are getting a snapshot if you will of the picture They’ve taken in their mind of what is in the future and you know shareholder letters from pretty smart and intelligent people I’m sure that you could learn something there Absolutely great additional thought next one study the pitfalls Yeah, oh you were tricking me, okay, so yes Absolutely great suggestion no strategy is without flaws and buying and hold equity is no exceptions One of the most common critics of the book is that the fundamental outlook even the long-term outlook of a company Can it can it can change? I would say it says can change I would say the fundamental outlook for Every-company will change

[05:11] I mean I would I’m that confident that change is Always been part of our environment, but it has been spaced out and the time Gaps between major changes are getting faster and faster and faster Where I believe whether your company is a hundred years old or 30 minutes old You’ve got to be looking and being prepared to move and change and do something different Absolutely, I was just thinking of Kodak and how they’re actually the ones that developed the digital camera But didn’t realize that they had it and pooh poohed it just absolutely didn’t think it was gonna have any Capability at all and now they’re literally out of business just because they weren’t paying attention So yes, you always need to be looking at change

[05:58] And we’re not always gonna know what that change is or how it’s gonna come about or what it’s gonna bring But we can at least still be looking our next step is investigate sustainable competitive advantages Oh, I like this word. Yeah, that’s very well said so the Sustainable part is very interesting. And again, if you’re looking long-term, that’s gonna be super critical Competitive advantages that’s I think just part of an inherent aspect of investments And yet we’ve talked many times on this podcast about the importance of win-win or even win-win-win You know a triple win for the investment. In other words, there’s lots of people that benefit from it. So Does that still have a competitive advantage?

[06:49] Absolutely, you have to go back and ask the question which is my all-time favorites from Daniel pink and it’s compared to what? So your competitive advantage is maybe not just within that industry or that particular style of company But it’s within that style of investing and then it’s that style of investing compared to other styles of investing And what are the advantages and disadvantages? I’m guessing we might be getting to that next of that particular style of investing compared to The whole world of other investing not just for example company a versus company B And I think so much more I’m starting to get an immense respect for the brain trusts That some of these you think of them as product oriented, but really truthfully

[07:37] They’re not they have a brain trust of people that has effectively got their fingers on the pulse of what people don’t even know they want yet and A confidence enough in themselves to commit to things that we don’t know we know yet and enough cash to pull it off It is impressive isn’t it margin of safety Deliberate, um to simply set snap up good-looking stocks because they’re competitive Without Investigating if they have a margin for error in other words You know if something breaks down in production or there’s a defective part on your first million units That has to be replaced, you know What do you do do you have somewhere that you can have that safety amount of cash? You know maybe it gets you know one another country

[08:35] You know holds it up because of health reasons or causes seizures or something like that There can be a numerous things even weather related look at the hurricanes That you have to have you know a little staying power While you’re getting even what the market wants to them you’re the ones going to have to put the bill while it’s on hold Absolutely, and it’s why we have preached so much about also having liquidity and about how liquidity is not an investment in other words storing cash like an emergency opportunity fund is not an investment or not investing and yet it Enables us to invest and it supports our investing Because that’s what gives us sustainability truly is that liquidity that backup plan that part B or?

[09:28] The idea of the emergency opportunity fund such that if a particular investment doesn’t come through in the time frame that we had thought We’re not forced to liquidate other investments in order to make up for that It is amazing the protection that having cash Can give all of your other investments and this kind of leads us to the next one, and it’s are you liquid? This is pretty funny especially since I did not know the nine that were coming I keep Accidentally I guess opening the door because it’s just the way I think this both sides of the story Environment and so good for him to tell me a little bit more about what he says about that Becoming an expert investor of any sort requires one non-negotiable

[10:18] prerequisite capital and not just a little bit of capital but enough to hypothetically lose what you invest and live without it Interesting so for a lot of our clients that really isn’t feasible and yet some of them lost half of it in 08 So to me they must absolutely find investments that are not going to cause Decimation of principal it’s so important to me the principal not be at risk and People like Warren Buffett can absolutely afford to have their principal at risk and consequently they can take on quote more risky investments that have the opportunity to Hit one out of the park as they say but we as your basic American people Or Canadians or who you know, whoever’s listening have to identify

[11:12] Investments that are not going to Have that kind of potential because we don’t want them to have the downside and we must remember as Todd Langford My husband likes to say that risk is the chance of loss risk is not the ability to hit one out of the park taking on risk is the Epitome of being willing to lose and so that’s why we talk in our environment about a zero risk tolerance because we’re not willing to lose And it is rare to find investments to do that, but we found them. All right Our next one is be emotionally ready. I’m gonna kind of warm me up on that one a little bit It’s just that the stock market and I would say any investment place Requires serious emotional chops to stick it out over the long run without selling in a time of panic

[12:02] So interesting, you know one of my favorite things to tell our clients when we’re talking about the types of investments that we work with many of which are not the norm is That their biggest risk is going to be that emotional side Their own confidence in what they’re doing when their friends is an example say you did what you invested in where oh My gosh, that’s immoral illegal You know myriad of terms that get applied to the various types of alternative investments that we like So yeah, I absolutely agree, but I’m probably expanding my definition of emotionally ready to include I guess what I would call like Socially ready like you need to be willing and able to deal with society and their

[12:51] Opinions about the types of investments or don’t share it with them, correct? Because I mean The internet I mean it was such a wonderful thing for so long so long But now you can literally make it say anything you want to And if you type in the most ridiculous thing, you’ll find us some Seventy two thousand websites that agree with it It’s crazy. Yeah All right, we’re on our last one and that and this is my favorite one by the way. Don’t waiver Unless your thesis Changes interesting. Yeah, in other words, you know we started at we start at the beginning when we build with our clients and we talk about beliefs and We talk about where they are and where they want to go and the tools and we start talking about tools and when when we’re

[13:51] Moving forward maybe We find that there’s a better tool Maybe we find one of the tools we use didn’t work as well as we thought it would But it does that does that or does that? necessarily Change the core map that we started with and The answer could be yes or no and I think that’s what you need to be prepared to do is is that you know, am I tweaking my tools or Am I making a major shift in my strategy? Absolutely Yep, and there’s nothing wrong with either just I think be conscious of what you’re doing But also remember what he says which is to go back to the beginning and that’s when we get clear and I Hear all the time clients will commit to a certain time frame in a particular structure Well, you know, let’s say it’s okay

[14:47] I understand I’m in their 10 years and nothing’s gonna happen to the fourth year and then at the second year They’re asking why they haven’t gotten any results Well, they’ve forgotten that it was not until the fourth year that they were gonna actually see results And so we need to be really conscious of when we start things and what the time frame is and be willing to stay the course Absolutely Kim would be a good resource for folks who want to read more about this kind of stuff Well, we’ve hinted at quite a bit of our alternative investing work in this talk and so I want to let everybody know that we have a book that’s dedicated specifically to That information as well as the alternative place that we like to store our cash for liquidity and it is called

[15:34] the Financial planning has failed book and so it is only available on our website and it is partners number four prosperity comm slash ebook there is a Booklet a audio version as well if people prefer that it’s an immediate download And it’s not available on Amazon. So partners number four prosperity comm slash ebook. Awesome I think that’s some great information Again Warren Buffett. We have all the respect in the world for what he has managed to accomplish Unfortunately, I think those of us going forward Neither have the assets that Warren does or are going to have the same opportunities that Warren did So for better or worse We’re all here to start and do it our own way and we love sticking together with you guys and trying to come up

[16:28] With as much information as we can share with you and this is a prosperity podcast. We’ll see y’all again real soon Thank you for listening to the prosperity podcast to take control of your money and have it work for you Visit us at partners for prosperity comm if you liked this episode, make sure you subscribe and leave a review